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Venable’s $20-million-plus-sanctions trade secrets win for government contractor: what it means for you

Your Vice President of Business Development resigns. The next thing you know, a new business opportunity that would have been yours inexplicably goes to a competitor – inexplicably, that is, until you learn that the competitor is working with your former Vice President in violation of his noncompetition agreement with you and is using your trade secrets courtesy of your former Vice President.

When this happened to our client, we filed suit and won a judgment for $20-million-plus-sanctions. We proved that the former employee stole a recent successful government contract proposal, Statements of Work and pricing information among thousands of stolen files; gave them to the competitor, who copied them (typos and all) into a proposal that the former Vice President helped the competitor prepare; and the competitor submitted the proposal to the U.S. government, knowing our client’s trade secrets contained in the proposal would position the competitor to receive contract award.

This 42-day trial was full of issues that every employer, and particularly every government contractor, should learn from to protect their interests and their trade secrets. We will highlight three of those issues:

Metadata is meta-important. Trade secret cases are largely about unwinding who had what documents; when they had them; who they gave them to; how they were manipulated and what they did with them. No victim of a theft of trade secrets can begin to address these questions without understanding metadata. Metadata can be understood as pieces of information that describe an electronic file. Metadata may reveal who authored a file, and when the file was created, opened, edited or printed.

In our case, the competitor's defense hinged largely upon one document (the "Sham Document") that the competitor claimed exonerated it from misappropriating our client's trade secrets. The competitor and the former Vice President tried to convince the Court that the Sham Document constituted a proposal the defendant was preparing to submit to a foreign government before the U.S. Government opportunity was publically advertised. The existence of the Sham Document at the time of the events in question supposedly showed that the defendant was not misappropriating our client's trade secrets to steal a U.S. government contract opportunity from our client but rather was engaged in preparing an innocent proposal seeking an opportunity that our client had no plans to pursue. Metadata proved the Sham Document was, well, a sham. In fact, the defendant created the Sham Document only after the litigation began to cover up the defendant’s misappropriation of our client's trade secrets. How did we prove that?

First, the Sham Document contained a "temporal anomaly." The anomaly was that the metadata showed a "Last Saved Date" that was earlier than the "Last Printed Date." Experts for both sides agreed: when Microsoft Word prints a document, the Last Saved Date must be on or after the Last Printed Date. The defendant's own expert testified that the anomaly "can be indicative of backdating" that can occur "where the system clock associated with the computer is for some reason set to the wrong date, whether it's intentional or not. And then there are tools that are specifically designed for modification of metadata dates."

Second, the Sham Document bore a File System Created Date on the defendant’s server that was long after the underlying events at issue in the lawsuit, after litigation had begun. This "File System Created Date" was compelling evidence establishing that the defendant had not been working on the Sham Document when it said it was (i.e., the innocent explanation), but instead created the Sham Document after the defendant knew that it had been sued for misappropriation.

Finally, we used metadata to prove that the defendant had backdated other files. Litigation-related documents that the defendant received in late September bore "Last Written Dates" in August. Similarly, post-August emails contained in an .OLM file had a "Last Written Date" in August– this was impossible. Two defense forensic experts said these anomalies suggested that someone had used a tool to backdate these files. One said that "a tool could have been used to change these [Last Written Dates] so that they were, you know, screwy." Our expert testified that "you can set those dates to anything you want. Once you’re using tools, all bets are off. You can make the dates dance and sing any way you want."

The judge noted all of this in concluding that the Sham Document was a "fraud." In addition to assessing compensatory and exemplary damages against the defendant, the judge said that the defendant's law firm should have known from the metadata that the Sham Document defense was a fraud. As a result, the judge imposed sanctions against the law firm for continuing to assert the defense in spite of the metadata that disproved the authenticity of the Sham Document.

Compilations of public information may be protectable as a trade secret. Odd though it may seem, some trade secrets include public information. Under the Uniform Trade Secrets Act (UTSA), a "compilation" of information may be a trade secret as long as it:

Derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use.

Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

Businesses frequently invest considerable resources in compiling public and proprietary information for all kinds of purposes – to enhance marketing campaigns, to respond to RFPs, to improve corporate performance. Any particular piece of that publicly-available information is not a trade secret. But when putting forth the effort to find, organize and present the information to create a product and when that work product provides a competitive advantage, and the business work product is not easily ascertainable, the end result may well be a trade secret. In our case, the defendant tried to justify its misappropriation of our client’s government contract proposal by saying that the proposal was simply a collection of publicly-available information, and thus the proposal was not a trade secret. Through the testimony of those that crafter the proposal, we persuaded the judge that the misappropriated proposal represented six years of our client's effort in developing, improving and refining the proposal. Drafting the proposal required finding and reviewing massive amounts of publicly-available information, making judgment calls about what information to use, and then distilling that information into proposal-appropriate tidbits that communicated the end product that our client offered. The judge found that our client's investment in compiling this information "provided the company with the competitive advantage necessary for trade secret protection."

Preserving documents and electronic storage devices is essential. The judge awarded our client millions of dollars in punitive damages against the defendant, and millions of dollars in attorneys' fees as sanctions against the defendant and its law firm. Some of the most egregious sanctionable conduct included:

The defendant "scrubbed" its server and key computers during the trial, shortly before these devices were to be imaged. The defendant used two evidence deletion tools that not only delete files, but also delete evidence that the files have been deleted. The judge wrote that "[t]he court has rarely, if ever in a civil matter, witnessed a party engage in such flagrant misconduct and act with such complete disregard for the truth and such profound disrespect for the law."

The defendant's law firm mishandled various pieces of electronic evidence. The firm could not identify what laptop, hard drive or thumb drive it received from its client, or when. The firm opened certain electronic files, thereby altering their all-important metadata, and in so doing erased evidence.

The defendant's law firm failed to disclose that it had certain pieces of electronic evidence in its possession.

The defendant repeatedly failed to produce documents in its possession, and repeatedly misrepresented to the court that no such documents existed.

Employers understandably fear the prospect of their most valuable assets – personnel and intellectual property – marching out the door. Prudent employers can address that fear by understanding issues like these, by training their employees as to their obligations and by working with counsel who can guide them through these crises.

Compare jurisdictions: Secured Lending

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